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Landlords for Help With Rent During COVID-19
Guidance on rent
reduction requests or rent negotiation with landlords. These are some thoughts and items
discussed. Hope you might find it
helpful to hear about the types of deals that have been proposed so far:
1) Straight waiver: Simply waiving rent in April and/or May 2020. We
have not seen anything further than 2-3 months out, but that could be possible.
We are generally seeing this waiver of rent with restaurants and other food or
retail tenants that are hanging by a thread.
2) Use of security deposit: Using the security deposit against rent and
then requiring the tenant to replenish it at a certain point later in the term.
3) Adding term to the end of lease: Giving 2-3 months free now and
extending the current term on the back end by the same 2-3 months.
4) Percentage Rent: Temporarily circumventing the fixed rent schedule
and replacing it with a percentage rent schedule where rent is a percentage of
the tenant’s gross sales. We are seeing 6-10% of gross sales.
5) NNN Only: With NNN leases, only charging the operating expense
reimbursement and waiving or deferring rent. This is like for the landlord maintenance expenses they incur if you pay this in addition to your rent: Like
cleaning of general areas – internal in the building and exterior (parking lot,
snow removal, yard work…etc.))
6) Deferred Rent: a) Deferring April and/or May rent to a later date or
amortizing the deferred rent over a period of time.
b) Another idea has
been to waive the deferred amount later if the tenant, for example, has no
material defaults in the lease through the remainder of the term, exercises an
option, and/or performs certain tenant improvement work, etc.
7) 33/33/33 vs. 50/50: One Union Square landlord offered a tenant two
scenarios to choose from:
a) They pay 1/3 rent during the month it is due, 1/3 is deferred until a later
point in the lease, and 1/3 is waived; OR
b) They pay 50% of the rent during the month it is due, and the remaining 50%
is deferred until a later date.
8) We have also been keeping an eye on the insurance sector to see if
any of the carriers have been paying claims, but to date, we have not heard of
any claims being paid. However, we believe that insurance will be tested, and
you should be following this sector closely as it might open another channel
for the tenants to access capital, maybe even before agreeing to any
9) Force majeure: Lastly, it might make sense to review with
your attorney the force majeure provision of the lease to determine its
effectiveness as related to events related to the COVID-19 pandemic.